A r c h i v e d  I n f o r m a t i o n

Overview

The cost of higher education

The answers to many important questions about higher education are determined in part by its cost. Is higher education a good investment for students? Is higher education affordable to students from middle income families? Is higher education accessible to students from low income families? Is higher education a good value? How are the costs of higher education shared between students, their families, and government?

These questions are interrelated with some highly publicized issues. For instance, reports of tuition charges of $20,000 or more have raised fears that college has become unaffordable. Some believe that federal financial aid policy should help more people finance their education. Others argue that too much federal financial aid is provided in the form of loans as opposed to grants. Further, public postsecondary institutions have had to cope with smaller appropriations as governments face increased pressure on their budgets and are relying more on tuition as a source of revenue. Finally, average faculty salaries have recently been rising faster than inflation, but only after much of their purchasing power was eroded during the high inflation years of the 1970s.

Some of the statistical evidence concerning these questions and issues that is available from this and earlier editions of The Condition of Education (as well as other NCES publications) is summarized below.

How much have tuition charges increased?

Access to postsecondary education is partially determined by its cost to students, so any changes in this cost are understandably of great concern to students, parents, and education policymakers. When considering the possible effects of rising tuition charges on student access to higher education, it is important to keep in mind which types of institutions most students attend. In the fall of 1993, four out of five students in higher education were attending public institutions, which have much lower tuition charges than private institutions. Also, only one in four of the students attending private institutions were attending universities where tuition charges are higher than those at other private 4-year institutions. [22]

                1980-90   1990-94   1980-94                 -------   -------   -------                          (percent) Public   Universities    4.0       4.8       4.2   Other 4-year    4.0       6.3       4.7   2-year          2.7       6.3       3.7  Private                                   Universities    5.2       3.8       4.8   Other 4-year    4.6       3.2       4.2   2-year          4.4       1.5       3.6 

Between 1980 and 1990, tuition charges increased at all types of higher education institutions, and since 1990 the rate of increase at public institutions has been greater than that at other institutions or than previously. For example, at public universities, tuition and fees grew at a rate of 4.0 percent per year (above the rate of inflation) between 1980 and 1990, but at a rate of 4.8 percent per year between 1990 and 1994. On the other hand, median family income did not keep pace with inflation. It fell in constant dollars from $42,500 in 1980 to $40,500 in 1993 (Indicator 7).

What have been the effects of rising costs on students?

SOURCE: Integrated Postsecondary Education Data System, Fall Enrollment, 1993.

Despite rising tuition charges, college-going rates have continued to rise, and there is no evidence that students are switching to lower cost 2-year colleges. In 1980, 30 percent of that year's high school graduates were enrolled in 4-year colleges in October compared to 38-40 percent in the early 1990s. Between 1980 and 1993, the percentage who enrolled in 2-year colleges did not change appreciably: it rose only from 19 percent in 1980 to 20 percent in 1990 and to 22 percent in 1993. Even among low income families who may be more affected by rising college tuition, college-going rates increased significantly from 33 percent in 1980 (at both 4-year and 2-year colleges) to 47 percent in 1990 and 50 percent in 1993 (Indicator 9).

Perhaps a reason for the continuing increase in college enrollment rates in the face of rising tuition is the relative advantage that college graduates have over high school graduates in the labor market. For example, in 1994 among 25- to 29-year-old males, college graduates were much less likely to be unemployed than high school graduates (3 versus 9 percent); and their female counterparts followed a similar pattern (table 29-1). Among 25- to 34-year-old workers, males who had graduated from college earned 57 percent more and females 99 percent more than their counterparts who had graduated from high school (Indicator 30).

Furthermore, while tuition charges were rising between 1980 and 1993, the earnings premium for graduating college was also rising, and may have outweighed any negative effect of rising tuition on enrollment rates. For male workers, the premium increased from 19 to 57 percent; for female workers, it increased from 52 to 99 percent. However, these increases were largely due to a decrease in the average earnings of high school graduates, rather than an increase in the average earnings of college graduates. For example, for males the average earnings of college graduates were about $33,000 in both 1980 and 1993; however, the average earnings of male high school graduates fell from about $28,000 to $21,000 over the same period (tables 30-1 and 30-3). Thus, young people today may need to acquire postsecondary education as protection from a deteriorating labor market for workers who have only a high school education.

Student financial aid, particularly from federal sources, is designed to defray some of the cost to students of attending college, particularly for those from low income families. During the 1992-93 academic year, the average amount of grant aid allocated to dependent full-time students attending public 4-year colleges was 29 percent of the average tuition charged them (Indicator 8). In effect, students received, on average, a 29 percent discount on tuition charges. Because the amount of grant aid is larger for students from low income families, this percentage was higher for students from such families (80 percent) than for students from high income families (10 percent). For those attending private 4-year colleges and universities, the patterns were similar; however, for students from low income families attending private 4-year institutions, the average amount of grant aid received was a smaller percentage of their average tuition charges than for their counterparts attending public 4-year institutions (64 versus 80 percent).

SOURCE: National Postsecondary Student Aid Study: 1992-93.

Private higher education institutions have substantially increased the amounts they are spending on scholarships and fellowships. This may allow these institutions to help those students who are most likely to need a reduction in tuition if they are to attend. At private universities, expenditures per full-time-equivalent (FTE) student for scholarships and fellowships increased from $1,800 in 1980 to $3,000 in 1990 and to $3,600 in 1992 (in constant 1994 dollars). At other private 4-year colleges, the amounts were smaller, but the gains equally important-from $1,100 in 1980 to $2,000 and $2,400 in 1990 and 1992, respectively. The increases at public institutions were not as great. At public universities, scholarship and fellowship support rose from $500 to $900 between 1980 and 1992, and at other public 4-year colleges from $400 to $500 (table 55-1).

Have costs to higher education institutions risen as quickly as costs to students, i.e., tuition?

In general, expenditures per FTE student increased only moderately over the same period. At public universities, they increased about 16 percent in constant dollars from about $15,000 to about $17,000 between 1980 and 1992; at public 2-year colleges, they rose and fell during the 1980s, but were at a similar level in 1992 to that in 1980-$5,700 (Indicator 55). They rose the most (about 43 percent) at private universities where total (education and general) expenditures per FTE student rose from about $23,000 to $32,000.

                                      Percent                                       change    Share for   Change in share Type and control          Total        since   instruction    since 1980 of institution        (1994 dollars)   1980     (percent)   per instructor --------------        --------------   -----    ---------   -------------- Public universities      $17,246         16          36           -3 Private universities      32,242         43          38            0 Other public 4-year       11,654          6          43           -2 Other private 4-year      15,029         34          33           -4 Public 2-year              5,686         -1          50            0 

Instruction is the largest category of expenditure for higher education institutions, but only at 2-year colleges does it reach half of all expenditures. At 4-year institutions, the share of expenditure for instruction varied from 33 percent at private colleges to 43 percent at public colleges in 1992. Other large categories include administration, research, and operation/maintenance of plant (table 55-1). Expenditures for instruction per FTE student rose more slowly than total (education and general) expenditures at most types of institutions. For example, instruction's share of the total fell by 2 percentage points at public colleges and by 4 percentage points at private colleges. The exception was private universities where instruction was a similar share of total expenditures in both 1980 and 1992 (table 55-2).

What factors are behind the rising expenditures per student in many sectors of higher education?

One possibility would be that enrollment fell as the large baby boom cohorts finished college, while employment of faculty and other staff remained stable. This pattern is not apparent in most sectors of higher education. The size of high school graduating classes did fall from 3.2 million in 1977 to 2.5 million in the early 1990s. However, while the graduating classes were getting smaller, enrollments at higher education institutions only leveled off during the first half of the 1980s and then continued increasing (table 36-1). Universities were the exception where enrollment grew very little between 1980 and 1992. [23] Finally, the number of staff employed in higher education increased over this period. The result of the two trends was that the number of FTE staff per 100 FTE students increased from 18.1 to 20.3 between 1983 and 1987 and was stable before (1977 to 1983) and after (1987 to 1989). [24]

Before considering another possibility, consider the distribution of types of staff employed in higher education and the effect they may have on the quality of education. In 1991, there were approximately six FTE faculty, both instructional and research, six other professional staff, and eight other non-professional staff for every 100 FTE students in higher education. [25] In public elementary and secondary schools, there were six classroom teachers and another five staff for every 100 students. [26] Despite the similar number of faculty per 100 FTE students in higher education and elementary/secondary schools, many of the classes at colleges and universities are quite large. For example, 33 percent of the classes at research universities have 50 or more students. At liberal arts institutions, however, only 5 percent of such classes are this large (table 50-1). Between 1988 and 1993, there was little change in the percentage of classes with more than 50 students.

Another possible factor that may be contributing to rising expenditures in some sectors of higher education could be rising prices of resources utilized by institutions of higher education. If resource prices rose faster than inflation and institutions did not change the quantity of resources employed per FTE staff, then expenditures per FTE student would rise. For example, if average faculty salaries rose faster than inflation but institutions maintained a stable number of faculty per 100 students, then expenditures per FTE student would rise-barring a reduction in the price or utilization of some other resource such as equipment, buildings, or staff benefits. It is worthwhile to focus some attention on faculty salaries, because it is likely that most expenditures at higher education institutions are for staff, as opposed to building and equipment, and one in three staff are faculty. [27]

Although average faculty salaries fell in constant dollar terms during the high inflation period of the 1970s, the trend reversed and average faculty salaries rose significantly during the 1980s. For example, the average salary of full professors at public institutions fell from $64,000 in 1972 to $49,000 in 1981 (in constant 1993 dollars). It then rose during the 1980s and was $58,000 in 1992. [28] At private institutions the patterns were similar. However, as was noted above, expenditures for instruction, which include expenditures for all faculty time except the part paid for by research grants and contracts, rose more slowly than total expenditures. This suggests that increased utilization or prices of other resources, including non-faculty staff, had a larger effect on expenditures than increased faculty salaries.

Finally, a possible reason for the rise in the cost of higher education over the long term is a lack of increase in productivity in higher education. Whereas, many sectors of the U.S. economy, particularly manufacturing and agriculture, have used technology and innovation to either increase the quantity or quality of goods provided with no corresponding increases in resources used, higher education is still provided in largely the same way it was when the nation was born. When productivity growth in a particular sector of the economy lags that in the rest of the economy, the cost of providing that good or service will increase. [29]

Has tuition as a source of revenue increased in importance?

In general, the trends in revenue per FTE student followed patterns similar to those for expenditures in each sector of higher education. With the exception of public 2-year colleges, revenue per FTE student (in constant dollars) increased at all types of higher education institutions between 1980 and 1992. At private institutions, the increase was particularly dramatic. At private universities, revenue per FTE student increased from $22,900 to $30,500, and at private 4-year colleges, it increased from $11,000 to $14,200 over this period. However, while revenue per FTE student increased, government appropriations fell (in constant dollars and as a percentage of total revenue) at all types of institutions. For public institutions, which rely heavily on government appropriations, the fall was particularly large between 1990 and 1992; even with significant increases in tuition revenue per FTE student, total revenue fell or remained steady over this period (Indicator 56).

The result of increasing tuition charges and declining government appropriations is that between 1980 and 1992 the share of revenue from tuition and fees increased at all types of institutions. Although public institutions rely less on tuition than do private institutions, the share of their revenue from tuition and fees increased 6 to 7 percentage points for all types of public institutions. On the other hand, these institutions rely much more heavily on government appropriations, and the share of their revenue from these sources fell 8 to 12 percentage points in all sectors. At private institutions, which rely heavily on tuition revenue, the share of revenue from this source increased 5 to 8 percentage points (table 56-2).

Is higher education still a good value?

Despite the large increase in average tuition charges, these charges remain well below total education and general expenditures per FTE student. At public institutions, average tuition charges are lower than expenditures for instruction per FTE student, i.e., excluding expenditures for administration, operation/maintenance of plant, libraries, and student services. At private universities, average tuition charges are similar to instructional expenditures per FTE student ($13,800 versus $12,300); however, at other private 4-year institutions, average tuition charges are higher than instructional expenditures per FTE student ($10,200 versus $5,000), but less than total expenditures per FTE student ($11,700). In most sectors of higher education, students are charged less on average than institutions spend for instruction, and some research suggests that students prefer to attend high spending institutions, particularly those where the difference between expenditures and tuition is the greatest. [30]

The cost of college to students includes more than the expenditures for tuition; it also includes foregone earnings. It is difficult for a person with a good job or the prospect of getting one to give up that income source to enroll in higher education. The earnings and experience given up to continue education are significant, possibly greater than the tuition that must be paid. [31] Even if the earnings of high school graduates between the ages of 18 and 23 are relatively low, they are nevertheless high when compared to average tuition charges, particularly those at public institutions. Thus, falling labor market opportunities for high school graduates may have reduced the cost of enrolling in higher education as much as rising tuition has increased it.

On the benefit side, large economic benefits appear to accrue to those who participate in higher education. Unemployment rates are lower, earnings are higher, working conditions are better, and fringe benefits are more generous for college graduates than for high school graduates. In addition, at least one of these benefits, the earnings benefit, not only has been increasing in recent years but also appears to grow larger with age.

In short, higher education still appears to be a good investment for students.

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[Educational progress of women]